The Budget, Super and your Investments

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Just like you and I the Government has to work out how much income they are going to earn for the year (taxpayers money) and what they are going to spend it on. Each May they reveal their budget and whether or not they are going to change any of the rules surrounding Super. This is a quick summary of the key policies that may be of interest to you that were announced last week in the budget.

Downsizing into Super

Retirees aged 65 and over who downsize their family home will be able to contribute up to $300,000 of the proceeds into superannuation as an after tax contribution and will be exempt from the work test. This applies to people who sell their main residence having owned it for at least 10 years. Couples will also be able to use it for the same home, making contributions of up to $300,000 each.

First Home Super Saver Scheme

In a move aimed at helping first time home buyers build a housing deposit, the Government proposes to allow voluntary contributions to super funds to be withdrwawn from 1July 2018 onwards for the purposes of buying a first home. Contributions into a super fund will be allowed by salary sacrifice up to a maximum of $15,000 per year to a maximum of $30,000 in total. Employees will still need to pay compulsory super guarantee payments to individuals who make these contributions. Withdrawals will be taxed at your marginal tax rate less a 30 per cent offset – effectively making withdrawals tax-free for anyone earning up to $87,000.

Financial’s – The bank levy

The most controversial policy announcement on budget night was the proposed bank levy on major Australian banks. The government will apply a 0.006% per annum levy from July 2017 on the major Australian banks (NAB, CBA, WBC, ANZ, MQG) with liabilities greater than A$100bn. The implications are far reaching but how they will eventually play out remains to be seen. The most obvious implications (i.e. response from the banks):

Cooling off in the housing market (this would be welcomed by the RBA).

According to rating agency, Moody’s, the levy is likely to impact pre-tax profit by approximately 3.8%. We are Neutral on the banks and as it stands today we do not see the levy as catastrophic. It is highly unlikely the banks’ CEOs are going to get much support (or sympathy) from the general public or politicians in a bid to block this legislation.

Housing – no silver bullet on housing

There was no silver bullet on housing affordability, with the government announcing no changes to negative gearing or being able to dip into your superannuation to purchase property other than the First Home Super Saver Scheme. However the proposed 50 per cent cap on foreign ownership in new resident developments could potentially impact Mirvac Group (MGR) and Stockland (SGP).

Media – Free to Air licence abolished

The government will abolish the A$130m annual free-to-air (FTA) licence fee which broadcasters pay and remove the 75% reach rule

and 2-out-of-3 cross media ownership laws.

This is a clear positive for Nine Entertainment (NEC) and Seven West Media (SWM), as it improves earnings and allows consolidation within the industry.

Healthcare

The government will slowly phase out the freeze on reimbursement indexation increases which came into effect in January 2015 and wants to increase the Medicare Levy by 0.5 percentage points for most working Australians.

From FY18 the government will allow increases on standard consultation by General Practitioners (GPs) who bulk-bill. In our view, while this is a positive for Primary Health Care (PRY) and Sonic Healthcare (SHL), the announcement will contribute low single digit improvement to earnings. In FY16, Medical centres made up a much larger component of group earnings for PRY (20% of group revenue) than SHL (8% of group revenue). It is worth noting that SHL has a much larger medical centre footprint and therefore the announcement is likely to be more beneficial to SHL.

Further, whilst the Medicare levy increase may eventually be observed as an increase in taxation (especially for high income earners) and both major political parties will no doubt argue over its merits, if the legislation was to be passed, any increase should be a positive to earnings for medical centre operators but less so and potentially negative for private hospitals (such as Ramsay Healthcare (RHC), Healthscope (HSO).

Infrastructure – A$75bn of it

This is a positive for the Australian economy, however we note infrastructure projects are slow moving (i.e. sticking to their timeline) and will take some time before materialising in earnings for construction materials’ companies. The government has also committed funding for the second Sydney airport in Western Sydney (A$5.3bn). Within our universe, Adelaide Brighton (ABC) and Boral Limited (BLD) are the most exposed to construction materials.

Sydney Airports management (SYD) indicated the project will be long dated and early thoughts are: (1) demand (especially inbound traffic from Asia) should be sufficient to support both airports; (2) SYD’s management team showed strong capital discipline during the process to pass on the project; (3) the second Airport may be more suitable for domestic travel and specific to Western Sydney.

Domestic retailers have long held that foreign retailers especially online retailers have had an unfair competitive advantage in not requiring customers to pay GST or themselves not needing to collect GST. In our view, JB Hi Fi (JBH), Harvey Norman (HVN), Myers Holdings (MYR) and Premier Investments (PMV) stand to benefit.

Overall I am happy with the budget and the upcoming infrastructure spend will not only boost jobs but make our lives better.

General Advice Warning The information provided in this post is general information only. Unless otherwise stated the information is not designed for the purpose of providing personal, financial or investment advice. Any examples are presented for illustration purposes and past performance is not a reliable indicator of future performance. The information provided does not take into account your particular investment objectives, financial situation or investment needs.Without limiting the generality of the above paragraph no person, persons or organisation should invest monies or take action on the reliance of the material contained in this post, but instead should satisfy themselves independently (whether by expert advice or otherwise) of the appropriateness of any such action. Unless otherwise stated the information presented is not a recommendation to invest in any investments, securities or financial products.This service, like all other financial services, is subject to market forces and unpredictable events that may adversely affect its future performance.Whilst all care has been taken in compiling information in this post, and is provided in good faith, it is not to be relied upon as a substitute for professional advice. The views expressed are commentary only and the writer accepts no responsibility for the accuracy, completeness or timeliness of the information.Super Equity Pty Ltd ACN 609 373 202 is a Corporate Authorised Representative 001238425 of ANDIKA Pty Ltd AFSL 297069It should also be noted that references and hyperlinks to any third party information (including, but not limited to: news articles, blogs, reports, videos or other mediums of information) is not an endorsement of that party or product.

Tracy Askew, Managing Director and Head Investment Advisor at Super Equity, is passionate about Superannuation, all things Equities, Options and Investing. She is a beach loving Queenslander who always tells it like it is, after all not everyone has a finance degree which is why she speaks in a language that her clients can understand. Tracy, has over 14 years’ experience in the Stockbroking Industry predominantly advising clients on their investments inside Super, and is an active Stockmarket Author and Educator for TAFE Queensland. Tracy believes that it’s her duty to pass on her knowledge and experience, and has been teaching and writing courses and investment information pieces for over nine years now.
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